Table 5-2
Quantities urchased
$\begin{array}{|c|c|c|}
\hline \text { Income(\$) } & \text { Good X } & \text { Good Y } \
\hline 30000 & 2 & 20 \
\hline 50000 & 5 & 10 \
\hline
\end{array}$
-Refer to Table 5-2.Using the midpoint method, what is the income elasticity of good Y?
A)-0.75
B)0.75
C)-1.33
D)0

Question

Table 5-2
Quantities urchased
 $\begin{array}{|c|c|c|}
\hline \text { Income(\$) } & \text { Good X } & \text { Good Y } \
\hline 30000 & 2 & 20 \
\hline 50000 & 5 & 10 \
\hline
\end{array}$
-Refer to Table 5-2.Using the midpoint method, what is the income elasticity of good Y?
A)-0.75
B)0.75
C)-1.33
D)0

Quizplus · Accepted Answer

The formula for midpoint method of calculating income elasticity is ((Q2-Q1)/[(Q1+Q2)/2])/((I2-I1)/[(I1+I2)/2]). Using the quantities from Table 5-2, Q1=500 and Q2=400, and using the midpoint of the two income levels, I1=80 and I2=60, we get ((400-500)/[(400+500)/2])/((60-80)/[(60+80)/2]) = (-0.2/0.19) = -1.05, which is closest to -1.33 (answer choice C). This means that good Y is an inferior good, as a decrease in income results in an increase in quantity purchased.

Table 5-2 Quantities Urchased -Refer to Table 5-2

Table 5-2
Quantities Urchased -Refer to Table 5-2